November 20, 2013 / 10:55 AM / 6 years ago

Royal Mail bankers reject claims sale price was too low

LONDON (Reuters) - Goldman Sachs and UBS bankers said Britain could not have sold the Royal Mail postal service at its current higher price, rejecting accusations that one of the biggest privatisations in years had short-changed taxpayers.

Pedestrians walk past the British Postal Museum at Mount Pleasant sorting office in central London, October 19, 2013. REUTERS/Paul Hackett

The two banks, which led Royal Mail’s London stock market listing, were summoned before a parliamentary committee on Wednesday to explain why they had priced the near 500-year old firm so far below its current market value.

Royal Mail’s shares have rocketed by as much as 80 percent since Britain sold a 60 percent stake in October for 330 pence per share, sparking criticism from unions and opposition lawmakers that the banks set the sale price too low.

The spotlight on the sell-off, one of the most significant since John Major’s Conservative party sold the railways in the 1990s, comes as the government is aiming to offload shares in Lloyds Banking Group and rival RBS.

Adrian Bailey, chairman of the Business Innovation and Skills committee and a member of the opposition Labour party, criticised the Royal Mail sale price.

“It is possible that the government has lost over 1 billion pounds worth of revenue for taxpayers at a time of great austerity,” he told Reuters after the hearing.

Richard Cormack, co-head of equity capital markets at Goldman Sachs said feedback from potential investors on what they were prepared to pay and the large stake on offer were among factors that had determined the price.

UBS banker James Robertson agreed. “The current price is not reflective of what we could have sold 600 million shares for,” Robertson told the committee. Varying views of risks facing Royal Mail, such as its lack of proven profitability, led to differing valuations by a number of banks, he said.

Royal Mail shares rose 38 percent on their first day of trading as investors piled in, prompting the committee to ask whether someone had been mislead in the sale process.

“Did investors con UBS and Goldman Sachs, or did UBS and Goldman Sachs con the government?,” said Bailey.

Goldman Sach’s Cormack suggested it was the former.

“We consulted with the market (during the float)...We didn’t get indications they were prepared to pay the levels that have been paid in the quantities that some of those institutions have bought,” he said.

Strong equity markets have helped the amount raised in London stock market listings so far this year more than quadruple to $14.5 billion from the same period in 2012.

The sale, in which Royal Mail staff were also given a 10 percent stake, valued the firm at 3.3 billion pounds ($5.31 billion). The stock was trading at 543p on Wednesday.


A cool performance from the UBS and Goldman Sachs bankers in the face of tough questioning from the committee was backed up by the bankers who were not involved in the sale.

Citigroup, Deutsche Bank, JPMorgan and Panmure Gordon also appeared before the committee to discuss pitches they made to government several months before the sale, in which they valued Royal Mail’s equity at 3.7 billion to 8.5 billion pounds.

Citi’s Ben Story said it was “incompatible” to compare earlier higher valuation estimates with the eventual offer price, due to the lack of detailed company information available to the banks at the time.

However, UBS and Goldman said they had advised the government in the days before the sale that they could get as much as 20p per share above the 330p offer price, but decided against taking the rare step of upping the range.

The bankers said the looming threat of industrial action by Royal Mail staff and debt problems in the United States had been key factors in that decision.

The Communication Workers Union, which represents Royal Mail staff, said the government had overplayed the impact of the risk of a strike, adding Vince Cable, the minister in charge of the sale, will have important questions to answer when he appears before the same committee on November 27.

In a note on Wednesday, UBS told investors to sell Royal Mail shares, warning there was too much optimism about future margin growth. It set a target price of 450p.

($1 = 0.6210 British pounds)

Additional reporting by William James; Editing by Erica Billingham

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